Why We Have A 
Marketing Problem 



BY SYDNEY ANDERSON 




The American Institute of Agriculture 



WHY WE HAVE A MARKETING PROBLEM 



An Introductory Marketing Talk 

by SYDNEY ANDERSON 

Member of Congress, Chairman Joint 
Commission of Agricultural Inquiry 



"Every Lesson By A National Authority" 



Confidential Edition 
Issued for Members 



Copyright, 1922 

THE AMERICAN INSTITUTE OF AGRICULTURE 

CHICAGO 



The Author of This Marketing Talk C\0^ 




Sydney Anderson 

"Who's the man with a broad and fair-minded view 
of agricultural marketing?" 

That was the question asked by the Executive 
Board of The American Institute of Agriculture 
v;hen it was decided that a marketing talk like the 
one you now have in your hands should be the first 
material presented to you. 

During the discussion of this subject, it was 
generally agreed that someone not financially in- 
terested in marketing, but directly interested in 
it for some other reason, would probably be the man, 

Hon. Sydney Anderson, Member of Congress since 
1913, was chosen because he has an unusually broad, 
comprehensive, accurate, and fair-minded view of the 
whole problem of marketing agricultural products. 

©ClA8'j(;i;>4 M-273 



WHY WE HAVE A MARKETING PROBLEM 



Probably the climax of his years of experience in 
the studying of agricultural marketing from the 
standpoint of the nation as a whole, came when he 
served as Chairman of the Joint Congressional Com- 
mission of Agricultural Inquiry. 

In the organization of the work of this Commis- 
sion, a wider variety of marketing facts and more of 
them were brought together than ever before. Every 
phase of the marketing of agricultural products was 
studied, and literally hundreds of business execu- 
tives joined in the work. 

Most of these men gave their services without 
any compensation, because they realized the value 
of the work being done by the Commission. At one 
time, an estimate was made which showed that if the 
men who were co-operating in this work were to be paid 
the salaries they were earning in their industrial 
positions, the payroll would amount to over $110,000 
a week. 

The organization of this important work illus- 
trates two things about Hon. Sydney Anderson. First, 
it indicates the thoroughness with which he takes 
hold of every task; second, it illustrates the 
respect that business men in general hold for this 
Congressman, whose standing has been won by his care- 
ful thinking, his fair-mindedness, and his aggressive 
action. 

He v;as selected by President Harding as the 
chairman of what is known as "President Harding's 
Agricultural Conference." 

He is the organizer of the National Transporta- 
tion Institute, an organization to make a thorough 
and impartial investigation of transportation. 

He has practiced law at Lanesboro, Minn,, since 
1904, and has represented his territory in the House 
of Representatives since 1913. 

He was a member of the Agricultural Committee 
of the House of Representatives during the early 



WHY WE HAVE A MARKETING PROBLEM 



rjonths of the World War, when the important v;ork of 
that committee was the consideration of food produc- 
tion and the control of marketing. It was this 
committee that organized the Food Administration 
and arranged with the Department of Agriculture to 
lend all of its efforts towards the stimulation of 
production. 

He was selected by this important committee 
handle all of the legal aspects of its bills on the 
floor of the House, as well as to care for the legal 
aspects in the preparation of the bills before they 
were presented. 

One of the most important committees of the House 
of Representatives is the Appropriations Committee. 
Hon. Sydney Anderson, as sub-chairman in charge of 
agricultural appropriations, has become known as 
the one man who knows more about the Department of 
Agriculture than any other present congressman. He 
has made it his business to know everything that he can 
learn about agricultural marketing and agriculture 
in general. 

So you see, Hon. Sydney Anderson has plenty of 
experience on which to base the clear and concise 
discussion to be found in this market talk. 

Summary of Hon. Sydney Anderson's Training and 
Experience 

Chairman, Joint Congressional Commission of Agri- 
cultural Inquiry 

Chairman, Pres. Harding's Agricultural Conference 
Organiser, National Transportation Institute 
Member of Congress, 1913 — 
Practiced law, Lanesboro, Minn., 1904 — 
Practiced law, Kansas City, Mo., 1903-1904 

Admitted to bar 1902 

Law Student, Highland Park College, Des Moines, 

Iowa, 1899-1900 
University of Minnesota, 1901-1902 



WHY WS HAVE A MARKETING PROBLEM 



SUGGESTIONS FOR STUDYING 
THIS INTRODUCTORY MARKETING TALK 

Congressman Sydney Anderson, who headed the 
Joint Commission of Agricultural Inquiry authorized 
by Congress, saw in this work an opportunity, not 
for muck-raking or political horse play, but for 
real service to agriculture. The Commission, under 
his direction, completed what is probably the most 
far-reaching investigation of agricultural mai-ket- 
ing and distribution that has ever been made. 

The Commission secured the assistance of trained 
experts in the marketing field and has heard the 
testim.ony of thousands of men in touch with all of the 
various phases of marketing and distribution. The 
report, which has just been issued, is a monumental 
piece of work, and the American Institute of Agri- 
culture was especially impressed with the Summary 
of Part 4 of the report on "Marketing and Distribu- 
tion." This Summary gave one of the clearest ac- 
counts of the development of our marketing problem 
that we have ever read, and we asked Representative 
Anderson to prepare an introductory Marketing Talk 
for our course based upon the findings of this Com- 
mission. The following pages will give you an unusu- 
ally clear understanding of the development of the 
present marketing system. 

Y'ou may possibly be surprised to receive a market- 
ing talk before you receive a lesson. The reason is 
this: This marketing talk introduces you to the 
marketing problem and prepares you for the study of 
Lesson A. 

It is not intended that you should study this 
marketing talk in as much detail as you will study the 
lessons. The object in providing you with this dis- 
cussion is to give you at least two very definite 
impressions. 



WHY WE HAVE A MARKETING PROBLEM 



In the first place, you will be impressed with 
the fact that marketing is rather a complicated 
process and requires the services of many people. 

In the second place, you will receive the impres- 
sion that the necessity for the intermediaries that 
handle products between the time they leave the pro- 
ducer and the time they are purchased by the con- 
sumer, arises from the fact that there are certain 
responsibilities that must be assumed which indi- 
vidual producers are not willing to take upon them- 
selves. So-called "middlemen" assume these re- 
sponsibilities, as explained on the later pages. 

Read this talk, therefore, with the idea of get- 
ting these two points clearly in mind. Study this 
marketing talk to learn the reasons for our present 
marketing situation. 

As soon as you are sure that you have a very 
definite impression from the reading of this market- 
ing talk, then proceed at once to the study of Les- 
son A, 



WHY WE HAVE A MARKETING PROBLEM 

In pioneer days there was no problem of distribu- 
tion, because people lived simply and produced their 
own foodstuffs, clothing materials, and found close 
at hand fuel and materials from which to create 
shelter. Pioneers in new territory established 
communities and developed resources. Railroads 
were built, goods were transported, and time and 
distance became factors in the relations and transac- 
tions of men. 

Fertile soil yielded crops beyond the require- 
ments of the farmer's family. Forests were converted 
into building materials for the erection of better 
homes and into furniture to fill the new homes. 
Mines were dug and their mineral products converted 
into machinery to relieve human labor. Farmers ex- 
changed their surplus crops for lumber to build 
barns and homes and for implements to cultivate the 
soil and harvest the crops. Traders and merchants 
came into existence because they facilitated the 
exchange of surplus goods. 

Travel Fac ilities Help ed Develop Market s 

Travel became a matter of comparative ease and 
men traveled far to display merchandise, while the 
resources of a continent were converted into new 
wealth with which to purchase greater comfort, con- 
venience, and opportunity. The standard of living 
constantly advanced and an ever-increasing propor- 
tion of the population entered the fields of industry, 
commerce, and finance. 

Cities grew and became the market places for 
agriculture. Working days became shorter and time 
and opportunity for recreation became greater. Edu- 



WHY WE HAVE A MARKETING PROBLEM 



cation and travel created a desire for comfort, 
convenience, and refinements not dreamed of in 
earlier generations. 

Electricity added to the length of the day by 
lighting cities and providing means of rapid, com- 
fortable locomotion. Telephone and telegraph ex- 
tended communication and nationalized industry, 
commerce, and finance. 

Marketi ng Fac il itie s Changed Living Habits 

Refrigeration revolutionised the transportation 
and storage of food products and changed the living 
habits of the Nation. Fruits, vegetables, and fresh 
meats were transported to distant markets. The pro- 
duction of the whole country v;as m.ade available to 
the large consuming centers, and crops of seasonal 
production were offered to consumers throughout the 
greater portion of the year. 

The consumer came to accept unusual service and 
convenience as a matter of course and finally to de- 
mand more, and each new service and convenience drew 
additional people into the activities of marketing. 
Time-saving, convenience, comfort, and satisfaction 
became the determining factors in the excellence of 
service. 
Why It Now Costs More to Market Than_ to Produce 

As more facilities were created, more people were 
engaged in marketing with a constant upbuilding of 
expense, until we have n ov/ re ached a point where 
it costs more to distri b ute and serv e the con- 
sujner than it cost s to pr oduc e. Co mmodity _ value s 
a re lost in a mase of service co sts . 

The distributive situation will be better appre- 
ciated when you realise that out of 41,614,248 people 
engaged in gainful occupation, 29,570,867 are en- 
gaged in manufacturing, transportation, distribu- 
tion, and allied activities, and that the people thus 



WHY WE HAVE A MARKETING PROBLEM 



engaged are contributing the comforts, conveniences, 
services, and operations that make the present 
standard of living possible. 

Strange as it may seem, the public does not real- 
ize that not only must the producer receive proper 
compensation for the raw materials, but that, out of 
the charge for service along the way, the men who 
operate railroad trains, drive trucks, operate 
machines, nail boxes, wrap packages, and the men v/ho 
make deliveries must be paid for the service the 
consumer has demanded. 

Why Farmers Leave M uch fo r Others to Perform 

The products of agriculture usually come into 
the local marlcet in relatively small lots of ungraded, 
unstandardized raw material for which the producer 
assumes no responsibility. It costs more to sell in 
small quantities than in large quantities: to sell 
an unstandard commodity than one that is standard; 
to sell a product for which the seller asummes no 
responsibility for variety, quality, standard, or 
delivery, than one where the seller guarantees the 
variety, quality, standard, or delivery of the com- 
modity. 

The unstandard character of the farmer's product 
as it comes to market, the small lots in which it is 
sold, and the fact that the farmer does not guarantee 
its variety, quality, standard, or its delivery, 
are large factors in diminishing the net return v/hich 
the farmer receives from the final consumer's dollar. 

The American farmer has been chiefly occupied 
with the problems of production, involving all the 
uncontrollable forces of nature and the combating of 
crop diseases and insect pests. 

He has been concerned with individual production 
rather than with service, marketing, and distribu- 
tion. Until such time as the agricultural producer 



10 WHY WE HAVE A MRKETING PROBLEM 

considers production in its relation to consumer 
demand and satisfaction, he is unlikely to materially 
improve his condition. 

At present, for the most part, the agricultural 
producers leave to others the selection, grading, 
standardizing and assembling of products, as well as 
the risks involved in marketing. The vast bulk of 
agricultural products is transported to large cen- 
ters for assembling, grading, converting, and dis- 
tributing. In practically all local markets in 
which agricultural products are offered, a variety of 
agencies exist for the purchase, preparation for 
market, and handling. 

The agencies within the local market ship the 
products to a primary m.arket, v/hich is the common 
point of concentration, or to a terminal market, 
where they are disposed of to converters or standard- 
izers to be prepared for the consuming market. 

The first function performed by agencies within 
the local market is the assembling of numerous small 
lots of products which have to be graded as to 
quality, variety, degrees of ripeness, and fitness 
for market. 

Buy ing Habi t s Add to Marketing Exp e nse 

The great bulk of farm products is harvested and 
marketed during a small portion of the year, 
whereas consumers' demand spreads over the entire 
year. Consumers buy frequently and in exceedingly 
small quantities, and demand that commodities be 
conveniently available at a moment's notice. Many 
of these commodities are highly perishable and must 
be handled with great rapidity and by means of special 
and expensive facilities for refrigeration and 
storage. 

Consumers in different localities have marked 
preferences as to grade, appearance, flavor, and 
package. Satisfaction of consumer preferences 



WHY WE HAVE A MARKETING PROBLEM IX 

begins with the agencies in the local market. This 
leads to specialization of dealers who handle single 
commodities or groups of commodities. 

Marketing Agencies Must Be Paid For Risks Assumed 

The agencies within the local market buy with the 
consideration of the risks and services involved in 
assembling, selecting, grading, standardizing, 
transporting, and selling. They establish their 
margins so far as competitive buying and competitive 
selling will permit , to adequately protect themselves 
against the various risks and secure a profit on 
their transactions. 

In communities where production is reasonably 
uniform and standardized, the agencies within the 
local market usually pay better prices in the pro- 
portion in which their risks are reduced and the 
degree to which the producer assumes responsibility 
for the character of his product. 

Producers do not always sell their products in 
local markets, but sometimes offer them for sale to 
buyers or through commission men in primary or ter- 
minal markets. In this case, the producer assumes 
the risk of transit, and losses, and wastes of im- 
proper packing, insufficient selection, and grading. 
When such shipments reach market, the commodities 
are graded and any portion that is not sufficiently 
mature, or is blemished or overripe or otherwise 
unfit for market, is disposed of at the expense of the 
producer. In such instances, the producer not only 
loses the commodity, but pays the transportation 
cost on products which should not have been shipped. 
These occurrences are of sufficient frequency to 
deserve a most careful study by the producer. 

Producers Cannot Perform All Marketing Services 
It is frequently suggested that agricultural 
products be sold by sample or grade description from 
markets established close to the centers of produc- 



12 WHY WE HAVE A IvlARKETING PROBLSIvi 



tion, and that in such markets there be established 
adequate and efficient warehouses, cold-storage 
plants, and other facilities for the protection and 
preservation of raw commodities. 

In theory at least, this suggestion has attract- 
ive possibilities in that it would save unnecessary 
waste and much handling and rshandling and avoid 
"back-tracking" products in the redistribution of 
commodities to smaller communities. 

This suggestion, however, assumes that standard 
grades can be universally established, and that con- 
sumers and dealers would willingly anticipate their 
requirements to sufficiently provide for a steady 
flow of products from point of production to place of 
consumption. It further assumes an intensive dis- 
tribution within the radius of territory that could 
absorb the quantities of agricultural products 
produced within any given center. 

Under existing conditions consumers find it more 
convenient to leave the responsibilities of selection 
and service to the established distributors. 

Wh y Parcel Pos t Selling Is L'Ot Popular 

There has been a definite effort on the part of 
the Post Office Department to attract public atten- 
tion to the opportunities offered by the Parcel Post 
System for direct trading between producers and con- 
sumers. Apparently the consumer has been unwilling 
to anticipate requirements sufficiently in advance 
to assure the producer a continuous m.arket , nor has 
the producer shown sufficient willingness to assume 
the responsibilities for quality of product and 
assurance of service to command the consum.er's con- 
fidence. 

There are certain risks which neither the pro- 
ducer nor the consumer is willing to accept, which 
are now assumed by "middlemen," and which influence 



WHY WE HAVE A MARKETING PROBLEM 13 

the price received by the producer and the price paid 
by the consumer. These will be considered in detail 
in a later lesson. 

Distribution involves Vno factors: (1) The move- 
ment of commodities from place of production to point 
of convenience for consumption; and (2) handling 
from the time of production to a convenient time for 
consumption. 

Why Such Marketing; Service Is High In Cost 

In the primary and terminal markets, commission 
men, v/holesalers, and buyers m.aintain warehouses, 
refrigeration, and facilities for the protection and 
conservation of commodities. The transportation 
agencies are required to provide facilities for pro- 
tection of commodities in transit. All of these 
activities involve investment and operating expense 
and require the employment of men and equipment. 

Practically all facilities in local, primary, 
and terminal markets are the result of individual 
initiative or the enterprise of a comparatively small 
group. This results in a lack of coordination of 
facilities, utilities, and operations. In the 
larger centers, railroad terminals are scattered to 
such an extent as to m.ake it necessary for shippers 
and receivers to transport perishable commodities 
through the city streets with much congestion, delay, 
and expense, causing an actual deterioration of 
perishable products and numerous duplications of 
handling. All of these things add materially to 
costs without adding either value or service to the 
commodity. 

While the large bulk of agricultural commodities 
coming into terminal markets represent the finished 
products of agricultural producers, they are raw 
materials to be converted into articles of food, 
clothing and finished products of great variety to 
satisfy the complex demands of modern society. Only 
a comparatively small portion of the agricultural 



14 WHY WE HAVE A MARKETING PROBLEM 

products would be required to satisfy consumers' 
requirements for food in its raw state. 

As a consumer, you are interested in wheat only 
as the material from which flour and cereals are 
made, and much of the production of fruit and vegeta- 
bles comes to you in tin cans and glass bottles. Live 
stock is of interest to consumers only as the source 
of selected cuts of meat and as the source from which 
clothing materials, shoes, fabrics, and numerous 
articles of utility and convenience are derived. 

Our Standard of Living Higher Than Other Nations 

During the period of development of new commodi- 
ties and new services, the American standard of 
living rose to a higher plane than that of any nation 
on earth, and the cost of living advanced in propor- 
tion to the public demands for or acceptance of com- 
fort, convenience, and superlative service. 

More and more people entered the fields of indus- 
try and distribution, and competition became in- 
creasingly severe. A constantly increasing propor- 
tion of the population found employment in the 
activities of handling, transporting, storing, 
converting, and distributing commodities and meeting 
new demands for supplemental services. 

Out of the "spread" between the amount received 
by the producer and the price paid by the consumer, 
compensation for all of the people aiding distribu- 
tion, must be found, and this brings the American 
public face to face with the problem of devising a less 
expensive and more efficient system of distributing 
the absolute essentials - food, clothing, shelter, 
and fuel. 

How Marketing Costs Fluctuat e 

The cost of distribution is made up of an infinite 
number and variety of costs of material and services, 
each of which influences the others and all of which 
combine to make the price the final consumer pays. 



WHY WE HAVE A MARKETING PROBLEM 15 



These factors vary in influence upon one another 
and upon the final price from year to year, from 
month to month, and even from day to day. 

They are each a part of a complex and flexible 
price structure which is extremely sensitive to gov- 
ernmental, economic, and psychological forces, such 
as taxes, interest rates, freight rates, custom, 
habit, usage, and practices of producers, consumers, 
manufacturers, and distributive agencies. 

There is no single factor in this complex price 
structure which can be said to be primarily or even 
principally responsible for the spread between pro- 
ducers' and consumers' prices. The elements which 
compose this spread must be attacked at every point 
in the chain of producing, manufacturing, and dis- 
tributing processes. 

How Marketing Costs May Be R educed 

Legislative panaceas cannot be effective in im- 
proving a situation brought about by the interplay 
of so many varied and complex factors. 

The cost of distribution can be reduced by a 
better understanding of the elements which com- 
pose it, the relationship of the agencies through 
v/ hich commodities are distributed, and a con- 
certed and conscientious effort on the part of 
p roducing, manufacturing, and distributing agen- 
cies to eliminate unnecessary and wasteful prac- 
tices and processes, to adopt more efficient 
methods and to relate more def initely these 
processes to one another, so that there can be a 
c ontinuous flow of commodities from p roducer to 
co nsumer in respo n se to known demands. 

In this effort, the understanding and co- 
operation of the producer and consumer is also 
an absolute essential. 



WHY WE SELL TO ALL THE WORLD 

The enterprise of Americans, together with our 
vast natural resources and comparatively small 
population, has brought the United States to the 
point where she supplies more of the world's needs of 
raw materials than any other nation. Indeed, in the 
case of some of the most essential products, she 
produces more than all the rest of the world com- 
bined. 

That makes it important for every student of 
marketing to know, at least in a general way, the 
importance of other countries in production and 
export, as well as their importance as buyers of 
American raw products. 

This subject is treated in a most interesting 
way in the first lesson. You v/ill be extremely sur- 
prised to learn some of the facts, and as you study 
Lesson A, you will undoubtedly be fascinated with 
what you learn, and the importance it will be to you 
in your study of marketing. 



lL2Sl.°^ CONGRESS 

Illllll I 



002 671 S 7 



